19 Sep 2018

Growth returns to lending, quarterly banking survey shows

10:21 am on 19 September 2018

New Zealand's bank profits have bounced back on the back of solid growth in loans to homebuyers and businesses.

Sign for TSB Bank

TSB showed strong growth in lending compared with bigger banks, according to KPMG's quarterly survey. Photo: RNZ / Claire Eastham-Farrelly

Collective profits for the top nine banks for the three months ended June rose 14.6 percent to $1.4 billion compared with the previous quarter's 11 percent drop, in KPMG's quarterly survey of the banking and finance sector.

KPMG's head of banking and finance, John Kensington, said the survey was a bit of a puzzle given the previous profit fall.

"It's a funny one really the previous quarter was a blip down, this is a blip back off the growth in the loan book... I'm completely perplexed by what I'm seeing."

Growth has come back into lending, particularly in the housing sector with people trading up in the market as well as in the commercial sector, Mr Kensington said.

The rebound in bank fortunes seemed to be at odds with the slide in business sector sentiment, he said.

"It will be interesting to see how the next couple of quarter's results behave as there are contradictory indicators - with, most notably, business confidence still down while other indicators are more positive."

Most of the big banks had modest growth in lending, although smaller, local institutions, such as Heartland and TSB showed stronger growth at more than 2.6 percent.

Bank returns were helped by a rise in net interest income, while operating expenses were fractionally lower, and bad and doubtful debts fell by two-thirds.

Mr Kensington said the downturn of the previous quarter did not seem to point to a pending downturn in the finance sector, although banks were still putting aside higher amounts for bad debts and that might be a sign of things to come.

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